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HMRC internal manual

Corporate Finance Manual

Loan relationships: computational rules: company ceasing to be party to a loan relationship

Consideration recognised after disposal

Where there is a related transaction (see CFM31120) such as a sale, the profit or loss on that transaction may not be fully recognised in the accounts when the company ceases to be a party to the loan relationship. The amount of the consideration for the disposal could be unascertainable if it is deferred and contingent on some future event. As a result, the company may bring credits and debits into account in accounting periods after the company ceases to be a party to the loan relationship.

In situations like this, CTA09/S331 brings in the debits and credits in the accounting periods following disposal as if the loan relationship still existed. The rules governing the taxability of such debits and credits depend on the circumstances in the period before disposal.


Auluk Ltd, a property developer, issues a security to Bennos Ltd to finance a housing project. The security is issued at a discount and will be redeemed in 3 years’ time, when it is hoped that the property will be completed and ready for sale.

In Year 2, Bennos Ltd sells the security to Cisdon Ltd. The consideration to be paid by Cisdon Ltd is dependent on the amount that Auluk Ltd repays. Bennos Ltd will not know what amount it will receive in full payment for the sale of the loan relationship. It might take a view in Year 2 about the amounts to be received and make adjustments in Year 3 in the light of later events.

Amounts will be brought into account for Year 3 when Bennos Ltd is no longer a party to the loan relationship. The tax treatment of the credits or debits will be determined by reference to the circumstances immediately before the sale. If the loan relationship was a non-trading loan relationship (see CFM32030) when Bennos Ltd was a party to the loan relationship then any later credits and debits will likewise be treated as non-trading debits and credits